Ahead of Earnings, Which Chip Stock Is Best Positioned?

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Share prices for semiconductor stocks were mixed last year. Two of the largest chip makers saw shares rise more than 40%, while one stayed flat and one dropped 30%. And the company that makes the equipment that chip makers use had a very good year, with a share price increase of 43%. The issue, of course, is what they will do for investors this year.

So far, the answer has to be, “Not much.” Year to date, four of the five stocks we have looked at are down and only one is up. And that is despite some kind words and solid recommendations from analysts. Here is a look at which is in the best position to put up the kind of numbers investors like to see.

Intel Corp. (NASDAQ: INTC) is the world’s largest chip maker, with a market cap of $148 billion. Intel’s shares rose nearly 42% in 2014, but to date in 2015 shares have given back more than 13%. The company cut its first-quarter estimates recently and shares dropped briefly below $30. The consensus earnings per share (EPS) estimate for the first quarter is $0.41, on revenues of $12.9 billion. The stock’s forward price-to-earnings (P/E) ratio is 12.97 and the price-to-book ratio is 2.64. The consensus price target is $34.61 and shares closed at $31.26 on Tuesday, implying a potential upside of 10.7%. Projections for desktop and laptop demand are weaker than they were last year, but both Deutsche Bank and UBS see the recent dip in Intel stock as a buying opportunity, especially given its dividend yield of 3.1%.

ALSO READ: 6 Credit Suisse Top Pick Technology Stocks to Buy Now

Broadcom Corp. (NASDAQ: BRCM) also gets a nod from Deutsche Bank, which has put a price target of $50 on the stock. Shares closed most recently at $43.17, compared with a consensus price target of $48.36. The implied upside here is 12%, based on the consensus price. Broadcom supplies components for the iPhone 6 and the just-released Samsung Galaxy S6, so the company is covering two very large bases. With a market cap of $25.86 billion, the stock’s forward P/E ratio is 14.30 and the price-to-book ratio is 2.85. Broadcom’s dividend yield is 1.3%, and the share price is essentially flat year-to-date, after gaining 48% in 2014.

Qualcomm Inc. (NASDAQ: QCOM) managed to maintain its share price in 2014, finishing the year just 0.72% higher. In the year to date, shares are down 8.9%. In a note from FBR on Tuesday, the firm lowered Qualcomm’s rating from Outperform to Market Perform and removed the stock from its Top Picks list. The consensus first quarter EPS estimate for the stock is $1.33, on revenues of $6.83 billion. The forward P/E ratio is 12.4 and the price-to-book ratio is 2.89. Analysts have a consensus price target of $76.66 on the stock, implying a potential gain of 13.9%, based on Tuesday’s closing price of $67.32.

Advanced Micro Devices Inc. (NYSE: AMD) had a poor year in 2014. The stock dropped 30%, and even though it is the only stock among these five to post a gain so far in 2015, the 1.1% increase is not exactly heart-stopping. Just a week after pumping up Intel and Broadcom, UBS analysts downgraded AMD from Neutral to Sell and set a price target of $2.40 on the shares. The consensus price target is $2.62, and shares closed at $2.70 on Tuesday, indicating a fully valued (overvalued) stock. Even at that modest price, the stock’s P/E ratio is 30. The company pays no dividend, and AMD is expected to post a first-quarter loss of $0.05 on revenues of $1.05 billion.

ALSO READ: Is Qualcomm Losing Its Edge?

Applied Materials Inc. (NASDAQ: AMAT) posted a share price gain of 43% in 2014 but has lost about 11% so far in 2015. The consensus first-quarter EPS estimate for the chip equipment maker is $0.28, on revenues of $2.4 billion. The company pays a dividend yield of 1.8% and has a forward P/E ratio of 14.28. The price-to-book ratio is 3.37. Based on a consensus price target of $27.45 and a closing price of $21.99 on Tuesday night, the potential upside here is nearly 25%.

While Applied Materials has the most potential upside, the price-to-book ratio is very high compared with the others. The best choice among these stocks might be Broadcom. The stock has held on to its 2014 gains, and the potential upside is enough to make things interesting.